SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
Commission file number 1-1705
HUNTER RESOURCES, INC.
(Exact name of Registrant as specified in its Charter)
Pennsylvania 87-0205057
(State of Incorporation) (I.R.S. Employer Identification No.)
600 East Las Colinas Blvd.75039te 1200, Irving, Texas
(Address of principal exec(Zip Code)ces)
(214) 401-0752
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Name of each exchange
Title of each class on which registered
--------------------------------------------------------------------
Common Stock, Par Value $.10 Boston Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
No Yes X
Indicate by check mark if disclosures of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. Revenues for the year ended December 31, 1995 were $2,967,000.
[ X ]
As of March 31, 1996, the Registrant had issued and outstanding 18,454,257
shares of Common Stock, Par Value $.10 Per Share. The aggregate market value of
the voting stock held by non-affiliates of the Registrant as of March 31, 1996
was at least $5,051,510.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
1995 ANNUAL REPORT (S.E.C. FORM 10-KSB)
INDEX
Securities and Exchange Commission
Item Number and Description
PART I
Item 1 Business ...............................................................3
Item 2 Properties - Oil and Gas Operations ....................................7
Item 3 Legal Proceedings......................................................13
Item 4 Submission of Matters to a
Vote of Security Shareholders..............................14
PART II
Item 5 Market for the Company's Common
Stock and Related Matters.....................................15
Item 6 Management's Discussion and Analysis of
Financial Condition and Results of Operations.................15
Item 7 Consolidated Financial Statements and
Unaudited Supplemental Information............................19
Item 8 Change in and Disagreements with Accountants
on Accounting and Financial Disclosure........................20
PART III
Item 9 Directors and Executive Officers
of the Registrant.............................................21
Item 10 Executive Compensation................................................22
Item 11 Security Ownership of Certain Beneficial
Owners and Management.........................................25
Item 12 Certain Relationships and Related Transactions........................26
PART IV AND SIGNATURES
Item 13 Exhibits, Financial Statement
Schedules and Reports on Form 8-K.............................27
Signatures............................................................29
2
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P A R T I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS.
------------------------------------
Hunter Resources, Inc. and Subsidiaries (hereinafter referred to as
"Hunter"or the "Company", formerly Intramerican Corporation) was formed in 1922
for the purpose of exploring and developing mining properties (formerly as East
Utah Mining Company) in Utah and Colorado. In 1980, the Company changed the
corporate name to Intramerican Oil and Minerals, Inc. and incorporated in
Pennsylvania. Simultaneously, the Company acquired producing oil and gas
properties from previously formed limited partnerships. The mining properties
were sold in 1986 with the proceeds used to repay bank debt. The Company changed
the corporate name to Intramerican Corporation effective October 1, 1990, to
more accurately reflect its broader base of operations. Effective December 1,
1990, Sunbelt Energy, Inc. and Subsidiaries ("Sunbelt") merged with a subsidiary
of the Company. Following two years of combined operations and in conjunction
with changes in executive management during 1992, the Company changed the
corporate name to Hunter Resources, Inc., effective November 10, 1992, to better
emphasize the Company's involvement in the energy resources business.
Historically, the Company has been an energy development and management
company with business objectives in four principal activities:(1) the
acquisition, production and sale of crude oil, condensate and natural gas; (2)
the gathering, transmission, and marketing of natural gas; (3) the business of
managing and operating producing oil and natural gas properties for interest
owners; and (4) providing consulting and U.S. export services to facilitate
Latin American trade in energy products. The Company's operations have
historically been conducted in five states, predominately in the Southwest
region of the continental United States, and Mexico.
RECENT DEVELOPMENTS.
--------------------
On July 21, 1995, the Company executed a definitive agreement to combine
with Magnum Petroleum, Inc. ("Magnum"), an American Stock Exchange Emerging
Company Marketplace publicly traded company, subject to Hunter shareholder
approval (the "Business Combination"). Pursuant to the definitive agreement,
Magnum issued to Hunter 2,750,000 shares of newly issued restricted common stock
in exchange for substantially all of the assets of Hunter subject to its
liabilities. Hunter's assets primarily consisted of capital stock ownership in
wholly-owned subsidiaries and capital stock ownership interests in limited
liability companies (the "Hunter Subsidiaries").
On December 19, 1995 to be effective December 22, 1995, Magnum and Hunter
entered into an amended Agreement and Plan of Reorganization and Plan of
Liquidation, as amended. The amendment was executed by Hunter shareholders
holding in excess of fifty percent (50%) of the outstanding common stock of
Hunter and one hundred percent (100%) of the outstanding preferred stock of
Hunter. The amended agreement provided for the issuance to Hunter of an
additional 2,335,077 shares of newly issued Magnum restricted common stock and
111,825 shares of Magnum Series C preferred stock. In summary, the total
consideration paid by Magnum for the Hunter subsidiaries was 5,085,077 shares of
restricted common stock and 111,825 shares of Series C preferred stock.
As the amended agreement was executed by Hunter shareholders owning in
excess of fifty percent (50%)of the outstanding common stock of Hunter and one
hundred percent (100%) of the outstanding preferred stock of Hunter, all
subsequent discussions and disclosures of the business of Hunter in this
3
<PAGE>
document include the assets and associated liabilities of the Hunter
Subsidiaries that have been sold and transferred to Magnum in the Business
Combination.
In negotiating the number of Magnum common and preferred shares to be
issued to Hunter for the acquisition of the Hunter Subsidiaries, consideration
was given to the value of the assets of each of the Hunter Subsidiaries, the
proved oil and gas reserves of the Hunter Subsidiaries (as applicable), the
assumption of existing liabilities, and the market value of Magnum's common and
preferred shares (prior to the date of the amended agreement through the date
that the definitive agreement was executed and announced).
As a result of the issuance of the common and preferred shares to Hunter by
Magnum, Hunter is the owner of approximately 43.8% of Magnum's total issued and
outstanding common stock. After approval of the Business Combination at the
Hunter shareholder meeting anticipated to be held in June 1996, the common and
preferred shares issued by Magnum will be subsequently distributed to the
respective Hunter shareholders and Hunter will be liquidated. Shareholders of
Hunter common stock are expected to receive one common share of Magnum for every
3.916 common shares of Hunter redeemed. Shareholders of Hunter preferred stock
are expected to receive 1.241 shares of Magnum Series C preferred stock and
3.987 shares of Magnum common stock for every share of Hunter preferred
redeemed.
GAS GATHERING, TRANSMISSION AND MARKETING.
- ------------------------------------------
Hunter Gas Gathering, Inc. (formerly IOM, Gas, Inc.), a wholly owned
subsidiary of the Company, owns and operates three gas gathering pipeline
systems located in the states of Oklahoma, Texas and Louisiana. Compression
services are provided by this subsidiary on all three systems through leases of
the equipment from third parties. The North Appleby system is located primarily
in Nacogdoches County, in East Texas. Approximately 39 wells are connected to
the system. Approximately 100 mmcf per month is delivered through the system
into a Natural Gas Pipeline Co. pipeline. The Schulter system is located in
Okmulgee County, Oklahoma. Approximately 10 mmcf per month is delivered from 38
wells into the Enogex pipeline. The Longwood system is located in Caddo Parish,
Louisiana. Approximately 30 mmcf per month flows through the system from 28
wells, and the gas is delivered into the Koch-Gateway pipeline. A substantial
portion of the gas delivered through these systems is marketed by the Company as
an added service to the producers from whom the Company acquires the gas.
PETROLEUM MANAGEMENT AND CONSULTING SERVICES.
- ---------------------------------------------
Gruy Petroleum Management Co. ("Gruy") has a 37-year history of managing
properties for banks, financial institutions, bankruptcy trustees, estates,
individual investors, trusts and independent oil and gas companies. The Company
provides drilling, completion, field inspections, joint interest billings,
revenue receipt and distribution services, regulatory filings with the
appropriate state and federal authorities, management of limited partnership
interests, gas marketing, environmental compliance services, expert witness
testimony and petroleum engineering services. Gruy manages, operates and
provides consulting services on oil and gas properties located in five states,
predominately within the Mid-Continent, West Texas, Eastern New Mexico and Gulf
Coast regions of the United States.
EMPLOYEES AND MANAGEMENT.
- -------------------------
The Company has a total of 14 employees, all of whom are employed
full-time. Seven of the Company's eight officers are employed by the Company on
a full-time basis and William C. Jones, Secretary, consults with the Company on
a part-time basis.
4
<PAGE>
<TABLE>
<CAPTION>
Held Office Position with the Registrant
Name Age Since or Registrant's Subsidiaries
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Gary C. Evans 38 1990 Chairman, President and Chief Executive Officer
Matthew C. Lutz 62 1993 Vice Chairman and Exploration and Business
Development Manager
R. Renn Rothrock, Jr. 53 1986 Executive Vice President
Richard R. Frazier 49 1994 Senior Vice President and Chief Operating Officer
Russell D. Talley 63 1991* Executive Vice President/Drilling Manager
Steven P. Smart 41 1995 Senior Vice President and Chief Financial Officer
David M. Keglovits 44 1977 Vice President/Controller/Assistant Secretary
William C. Jones 56 1995 Secretary
* Officer of Registrant's Subsidiary(s) only.
</TABLE>
Gary C. Evans, age 38, Chairman, President and Chief Executive Officer of
Hunter since September, 1992. Previously, President and Chief Operating Officer
of Hunter from December, 1990 to September, 1992. Chairman and Chief Executive
Officer of all of the Hunter's subsidiaries since their formation or
acquisition. From 1981 to 1985, Mr. Evans was associated with the Mercantile
Bank of Canada where he held various positions including Vice President and
Manager of the Energy Division of the southwestern United States. As an oil and
gas lending officer of a $4.5 billion Canadian bank, he initiated and managed an
energy loan portfolio in excess of $125 million. From 1978 to 1981, he served in
various capacities with National Bank of Commerce (now BancTexas) including its
Credit Manager and Credit Officer. Mr. Evans serves on the Board of Directors of
S.O.I. Industries, Inc., and Digital Communications Technology Corporation, two
American Stock Exchange listed Companies. Mr. Evans was appointed President,
Chief Executive Officer and a Director of Magnum in December 1995.
Matthew C. Lutz, age 61, Vice Chairman and Exploration and Business
Development Manager of Hunter since September 1993. From 1984 through 1992, Mr.
Lutz was Senior Vice President of Exploration and on the Board of Directors of
Enserch Exploration, Inc. with responsibility for the company's worldwide oil
and gas exploration and development program. During his tenure, Enserch
substantially increased its gas and oil reserves while having among the lowest
reserve replacement costs in the industry. Prior to joining Enserch, Mr. Lutz
spent twenty-eight years with Getty Oil Company. He advanced through several
technical, supervisory and managerial positions which gave him various
responsibilities including exploration, production, lease acquisition,
administration and financial planning. Mr. Lutz played a major role in Getty's
discoveries of reserves in the Onshore and Offshore United States. Mr. Lutz was
appointed Vice Chairman and Exploration and Business Development Manager of
Magnum in December 1995.
R. Renn Rothrock Jr., age 53, President of Gruy Petroleum Management Co.
since January 1994. He previously was Executive Vice President and Chief
Operating Officer when he joined Gruy in May 1987. From November 1977 to
February 1981, Mr. Rothrock was Vice President and Energy Development Manager of
First National Bank of Mobile, Alabama. From 1981 to 1983, he served as
Executive Vice President of Energy Assets International, a public company that
raised $170 million for mezzanine financing of oil and gas ventures. From 1983
to 1986, he generated and managed his own producing wells, gas gathering and
transportation system in the State of Texas. In 1986, Mr. Rothrock structured
and negotiated the merger between Gruy Engineering Corporation and Energy Assets
International and served as Executive Vice President and General Manager of
5
<PAGE>
Gruy Engineering Corporation until the purchase of Gruy Petroleum Management Co.
by Hunter Resources, Inc. in May 1988. Mr. Rothrock has served in various
engineering and management positions for both major and large independent oil
and gas companies. He has been in charge of all engineering functions including
profit improvement in the district office of a major oil company. He has also
served as engineering editor of Petroleum Engineer International where he was
responsible for the technical content of all material published in the magazine.
Mr. Rothrock is a registered Professional Engineer and member of the Society of
Petroleum Engineers, National Academy of Forensic Engineers and several other
industry organizations. Mr. Rothrock earned a BS in petroleum engineering in
1965 and a MS in engineering in 1969, both from the University of Oklahoma.
Richard R. Frazier, age 49, Senior Vice President and Chief Operating
Officer Gruy Petroleum Management Co., since January 1994. From 1977 to 1993,
Mr. Frazier was with Edisto Resources Corporation in Dallas, serving as
Executive Vice President Exploration and Production from 1983 to 1993. Mr.
Frazier had overall responsibility for the company's property acquisition,
exploration, drilling, production, gas marketing and engineering functions. He
has been responsible for hiring staff and coordinating efforts to evaluate,
purchase and operate over $400 million in oil and gas properties, consisting of
2,200 wells in 19 states. From 1972 to 1976, Mr. Frazier served as District
Production Superintendent and Petroleum Engineer with HNG Oil Company (Now Enron
Oil & Gas) in Midland, Texas. Mr. Frazier's initial employment, from 1968 to
1971, was with Amerada Hess Corporation as a Petroleum Engineer involved in
numerous projects in Oklahoma and Texas. Mr. Frazier graduated in 1970 from
University of Tulsa with a Bachelor of Science Degree in Petroleum Engineering.
He is a registered Professional Engineer in Texas and a member of Society of
Petroleum Engineers and many other professional organizations
Russell D. Talley, age 63, Executive Vice President and Drilling Manager of
Gruy Petroleum Management Co., Houston Division, since January 1991. Mr. Talley
brings 33 years of international and domestic drilling and production experience
to Gruy. From 1959 to 1970, Mr. Talley worked for Diamond Shamrock Oil & Gas
Company in Amarillo, where he held substantial responsibilities in drilling,
production and workover programs. He supervised operations for more than 300
properties, and drilled and completed wells in the predominant oil and gas
basins of the Mid-Continent and portions of Canada. From 1970 to 1985, Mr.
Talley worked for Samedan Oil Corporation in Houston, where he became the
Manager of Offshore Drilling and Production. He managed all domestic and
Canadian drilling operations, supervised international operations in Ecuador,
the North Sea and Canada. From 1985 to 1987, Mr. Talley was vice president of
operations for Seagull Energy E & P, Inc. in Houston, where he was responsible
for all onshore and offshore drilling operations. In 1988 he established Texstar
Energy Operators, Inc., which was acquired by Gruy in 1991.
Steven P. Smart, age 41, Senior Vice President and Chief Financial Officer
of the Company since November 1995. Prior to joining the Company, Mr. Smart was
Controller for the last three years for a publicly traded oil and gas company on
the Vancouver Stock Exchange. Prior to that time, Mr. Smart was Chief Financial
Officer for a privately held independent oil and gas company. Mr. Smart has more
than nineteen years of experience in the oil and gas industry including five
years in the audit department with Touche Ross (now Deloitte & Touche). Mr.
Smart's experience includes the areas of public reporting to the Securities and
Exchange Commission, energy industry tax issues, public and private partnership
reporting, and acquisitions. Mr. Smart is a Certified Public Accountant. Mr.
Smart was appointed Senior Vice President and Chief Financial Officer of Magnum.
David M. Keglovits, age 43, Vice President and Treasurer of Gruy Petroleum
Management Co. Mr. Keglovits joined Gruy in March 1977 as an accountant before
holding the positions of Assistant Controller, Controller and Chief Accounting
Officer. From December 1974 to December 1976, Mr. Keglovits was employed by Bell
Helicopter International in their financial management office in Tehran, Iran.
Mr. Keglovits is an Honors Graduate of the University of Texas at Austin,
earning a BBA in Accounting.
6
<PAGE>
William C. Jones, age 56, Corporate Secretary, since July 1995. Mr. Jones
graduated from Texas Christian University in 1961 receiving a Bachelor of
Science degree with a major in accounting. He received a Juris Doctor from the
University of Tulsa and was admitted to the Oklahoma bar in 1968. After law
school, Mr. Jones gained experience as a staff tax attorney for major energy
companies and as a member of senior management for a publicly owned oil and gas
company. He generally represents emerging companies in securities, taxation, and
general corporate matters. He has participated as an investor, owner, and
manager of several energy ventures. His experience includes the negotiation and
documentation of mergers and acquisitions, preparation and registration of
equity placements, litigation of tax matters, documentation and registration of
offshore financing, and preparation of private placements. Mr. Jones was
appointed Secretary of Magnum in December 1995.
ITEM 2. PROPERTIES - OIL AND GAS OPERATIONS
GENERAL.
--------
The following tables summarize certain information regarding the estimated
proved oil and gas reserves as of December 31, 1995 and 1994 and estimated
future net revenues from oil and gas operations of the Company as of December
31, 1995 and 1994. Such estimated reserves and future net revenues, as set forth
herein and the Supplemental Information to the Company's Consolidated Financial
Statements, are primarily based upon reports prepared by James J. Weisman, Jr.,
an independent registered petroleum engineer. All such reserves are located in
the continental United States.
The reserve data herein represent only estimates that are based on
subjective determinations. Accordingly, the estimates are expected to change as
additional information becomes available. Of necessity, estimates of oil and gas
reserves are projections based upon engineering and economic data. There are
uncertainties inherent in the interpretation of such data, and there can be no
assurance that the proved reserves set forth herein will ultimately be produced,
or that the estimated revenues will be realized within the periods indicated. It
should be noted that petroleum engineering is not an exact science but instead
involves estimates based upon many factors.
Oil and gas prices used herein are based on the most current price available
at the time the reserve study was prepared. The average price used in the
following estimates at December 31, 1995, was $17.50 per barrel of oil and $2.03
per Mcf of gas (includes higher prices received on "rich" BTU gas and
condensate). Lease operating costs are based on historical operating expense
records.
The Company accounts for its oil and gas properties using the full cost
method, which requires the Company to compare the net capitalized costs of its
oil and gas properties to the present value of the projected cash flows from the
associated oil and gas reserves.
PROVED OIL AND GAS RESERVES.
----------------------------
Oil reserves are expressed in barrels (Bbls) and gas reserves are expressed
in thousands of cubic feet (Mcf). The following table sets forth proved reserves
considered to be economically recoverable under normal operating methods and
existing conditions, at prices and operating costs prevailing at the date
thereof.
7
<PAGE>
PROVED OIL AND GAS RESERVES
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1995<F1> 1994
Oil (Bbls) Gas (Mcf) Oil (Bbls) Gas(Mcf)
---------- ---------- ---------- ---------
Proved Developed Reserves 1,434,070 7,884,429 761,615 2,137,089
Proved Undeveloped Reserves 1,688,312 3,088,869 368,436 680,792
---------- ---------- ---------- ---------
TOTAL PROVED RESERVES 3,122,382 10,973,298 1,130,051 2,817,881
========== ========== ========== =========
<FN>
<F1> Information here represents properties acquired by Magnum.
</FN>
</TABLE>
Definition of Reserves -- The reserve categories are summarized as follows:
Proved developed reserves are those quantities of crude oil, natural gas and
natural gas liquids which, upon analysis of geological and engineering data,
demonstrate with reasonable certainty to be recoverable in the future from known
oil and gas reservoirs under existing economic and operating conditions. This
classification includes: (a) proved developed producing reserves which are those
expected to be recovered from currently producing zones under continuation of
present operating methods; (b) proved developed non-producing reserves consist
of (i) reserves from wells which have been completed and tested but are not yet
producing due to lack of market or minor completion problems which are expected
to be corrected, and (ii) reserves currently behind the pipe in existing wells
and are expected to be productive due to both the well log characteristics and
analogous production in the immediate vicinity of the well.
Proved undeveloped reserves are those reserves which may be expected either
from existing wells that will require an expenditure to develop or from
undrilled acreage adjacent to productive units which are reasonably certain of
production when drilled. Future development costs have been estimated to be
approximately $5,889,000 at December 31, 1995 with significant expenditures
expected to begin in 1996 and 1997.
No other estimates of total proven net oil or gas reserves have been filed
by the Company with, or included in any report to, any United States authority
or agency pertaining to the Company's individual reserves since the beginning of
the Company's last fiscal year.
ESTIMATED FUTURE NET REVENUES.
- ------------------------------
The following table sets forth an estimate of future net revenues after
deducting applicable production and ad valorem taxes, future capital costs and
operating expenses, but before consideration of federal income taxes. The future
net revenues have been discounted at an annual rate of 10% to determine the
"present value". The present value is shown to indicate the effect of time on
the value of the revenue stream and should not be construed as being the fair
market value of the properties. Estimates have been made in accordance with
current Securities and Exchange Commission guidelines concerning the use of
constant oil and gas prices and operating costs in reserve evaluations.
Estimated Discounted
Future Net Revenues
As of December 31,
<TABLE>
<CAPTION>
1995<F1> 1994
---- ----
<S> <C> <C>
Developed $17,062,871 $ 5,899,522
=========== ===========
Developed and Undeveloped $30,507,735 $ 7,994,297
=========== ===========
<FN>
<F1> Information here represents properties acquired by Magnum.
</FN>
</TABLE>
8
<PAGE>
OIL AND GAS PRODUCTION.
-----------------------
The following table shows the approximate net production attributable to the
Company's oil and gas interests for the periods indicated.
Net Production
For the Year Ended
December 31,
1995 1994
---- ----
Oil (Bbls) 54,307 24,605
======= =======
Natural Gas (Mcf) 445,886 127,854
======= =======
The following table shows the average sales price per barrel of oil and mcf
of natural gas and the average production costs attributable to the Company's
oil and gas production for the periods indicated.
Average Sales Price
For the Year Ended
December 31,
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Average Sales Price<F1>
Oil (Bbl) $16.09 $13.70
====== ======
Natural Gas (Mcf) $ 1.69 $ 1.90
======= =======
Average Production Cost<F2>
Per equivalent barrel<F3> $ 5.92 $ 8.96
====== =======
Per dollar of sales 0.47 0.71
======= =======
<FN>
<F1> Before deduction of production taxes.
<F2> Excludes depletion, depreciation and amortization. Production cost includes
lease operating expenses and production and ad valorem taxes, if
applicable.
<F3> Gas production is converted to equivalent barrels at the rate of six mcf of
gas per barrel, representing the estimated relative energy content of
natural gas and oil.
</FN>
</TABLE>
PRODUCTIVE WELLS
----------------
The total gross and net wells, expressed separately for oil and gas, as of
December 31, 1995 and 1994 are as follows:
9
<PAGE>
<TABLE>
<CAPTION>
Productive Wells<F2><F3>
As of December 31,
1995
Gross<F1> Net<F1>
Location Oil Gas Total Oil Gas Total
-------- --- --- ----- --- --- -----
<S> <C> <C> <C> <C> <C> <C>
Texas 121 16 137 32.84 7.53 40.37
Oklahoma 241 19 260 43.82 5.98 49.80
Mississippi 4 0 4 2.98 0 2.98
New Mexico 3 4 7 2.48 1.14 3.62
Kansas 2 0 2 1.74 0 1.74
--- --- --- ------ ------ ------
371 39 410 83.86 14.65 98.51
=== === === ====== ====== ======
Productive Wells<F2>
As of December 31,
1994
Gross <F1> Net<F1>
Location Oil Gas Total Oil Gas Totals
-------- --- --- ----- ---- --- ------
Texas 56 13 69 1.87 6.22 8.09
Oklahom 246 20 266 12.17 3.44 15.61
Mississippi 4 - 4 2.98 - 2.98
--- -- --- ----- ---- -----
306 33 339 17.02 9.66 26.68
=== == === ===== ==== =====
<FN>
<F1> The number of gross wells is the total number of wells in which a
fractional working interest is owned. The number of net wells is the sum of
the fractional working interests owned by the Company in gross wells
expressed in whole numbers and decimal fractions thereof.
<F2> There were no producing wells in 1995 or 1994 that were producing from
multiple completion zones.
<F3> Information here represents properties acquired by Magnum.
</FN>
</TABLE>
DRILLING RESULTS.
-----------------
The Company's drilling activities have been limited to workovers on existing
wells during 1995 and 1994.
DEVELOPED AND UNDEVELOPED ACREAGE.
----------------------------------
The following tables set forth the approximate gross and net acres of
productive properties in which the Company had a leasehold interest as of
December 31, 1995 and 1994. "Gross" acres refers to the total acres in which the
Company has a working interest, and "net" refers to the sum of the fractional
working interests owned by or attributable to the Company in gross acres.
Developed acreage is that acreage spaced or assignable to productive wells.
Undeveloped acreage is considered to be that acreage on which wells have not
been drilled or completed to a point that would permit the production of
commercial quantities of oil and gas regardless of whether or not such acreage
contains proven reserves.
10
<PAGE>
LEASEHOLD ACREAGE
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
GROSS ACRES NET ACRES GROSS ACRES NET ACRES
<S> <C> <C> <C> <C>
1995<F1> 60,747 20,072 2,326 1,777
====== ====== ===== ======
1994 43,985 10,548 1,738 1,631
====== ====== ===== =====
<FN>
<F1> Information here represents properties acquired by Magnum.
</FN>
</TABLE>
Essentially all of the Company's oil and gas interests are working interests
or overriding royalty interests under standard onshore oil and gas leases,
rather than mineral ownership or fee title. The defensibility of the Company's
title to such interests in most cases is supported by written title opinions.
Substantially all of the Company's oil and gas properties are pledged to a
financial institution under certain credit agreements.
OFFICE SPACE.
-------------
The Company leases office space as follows:
LOCATION SQUARE FEET LEASE EXPIRES
-------- ----------- -------------
Irving (Las Colinas), Texas 7,439 November 1, 2001
TITLE OF PROPERTIES.
--------------------
Title to the properties acquired by the Company is subject to royalty,
overriding royalty, carried and other similar interests, contractual
arrangements customary in the oil and gas industry, liens incident to operating
agreements, liens for current taxes not yet due and to other comparatively minor
encumbrances. The Company's oil and gas properties and gas gathering systems are
mortgaged to secure borrowings under bank credit agreements assumed by Magnum in
the Business Combination.
COMPETITION.
------------
The oil and gas industry is highly competitive. Competitors include major
oil companies, other independent oil and gas concerns, and individual producers
and operators, many of which have financing resources, staffs and facilities
substantially greater than those of the Company. In addition, the Company
frequently encounters competition in the acquisition of oil and gas properties,
gas gathering systems, and in its management and consulting business. The
principal means of competition are the amount and terms of the consideration
offered. When possible, the Company tries to avoid open competitive bidding for
acquisition opportunities. The principal means of competition with respect to
the sale of oil and natural gas production are product availability and price.
While it is not possible for the Company to state accurately its position in the
oil and gas industry, the Company believes that it represents a minor
competitive factor.
BUSINESS RISKS AND REGULATION.
------------------------------
The Company's operations are affected in various degrees by political
developments, federal and state laws, and regulations. In particular, oil and
gas production operations and economics are affected by price controls,
11
<PAGE>
tax and other laws relating to the petroleum industry. They are all affected by
the changes in such laws, by changing administrative regulations, and by the
interpretation and application of such rules and regulations.
Legislation affecting the oil and gas industry is under constant review for
amendment or expansion. Numerous departments and agencies, both federal and
state, are authorized by statute to issue and have issued rules and regulations
binding on the oil and gas industry and its individual members, some of which
carry substantial penalties for the failure to comply. The regulatory burden on
the oil and gas industry increases the Company's cost of doing business and,
consequently, affects its profitability. Sales of crude oil, condensate and
natural gas liquids by the Company can be made at uncontrolled market prices.
Changing Oil and Natural Gas Prices and Markets -- The market for oil and
natural gas produced by the Company depends on factors beyond its control,
including the extent of domestic production and imports of oil and natural gas,
the proximity and capacity of natural gas pipelines and other transportation
facilities, demand for oil and natural gas, the marketing of competitive fuels,
and the effects of state and federal regulation of oil and natural gas
production and sales. The oil and gas industry as a whole also competes with
other industries in supplying the energy and fuel requirements of industrial,
commercial and individual consumers.
For over a decade, there has been a significant overall decline in the
demand for natural gas in the United States and in the prices paid for oil and
gas. The oversupply was caused primarily by a decrease in market demand and
unusually warm weather conditions. Seasonal variations exist to the extent that
the demand for natural gas is somewhat lower during the summer months than
during the winter season. Gas prices have been extremely volatile over the past
year and it is not known whether or not a current surplus in natural gas
deliverability exists as has been the case over the past six (6) years. Crude
oil prices are affected by a variety of factors. Since domestic crude oil price
controls were lifted in 1981, the principal factors influencing the prices
received by producers of domestic crude oil have been the pricing and production
of the members of the Organization of Petroleum Exporting Countries ("OPEC").
While the Company cannot predict the future prices of oil and natural gas, the
potential for further price volatility is probable and the possibility of price
declines exists.
The Company's production revenues and the carrying value of its oil and
natural gas properties are affected by changes in oil and natural gas prices.
Moreover, the Company's current borrowings under certain credit facilities, its
borrowing capacity and its ability to obtain additional capital are directly
affected by oil and natural gas prices.
Federal Regulation of Sales of Natural Gas -- Historically, the
transportation and sale for resale of gas in interstate commerce have been
regulated pursuant to the Natural Gas Act of 1938 (the "NGA). In addition, since
1978, maximum selling prices of certain categories of gas, whether sold in
interstate or intrastate commerce, have been regulated pursuant to the Natural
Gas Policy Act of 1978 (the "NGPA"). These statutes are administered by the
Federal Energy Regulatory Commission ("FERC"). The provisions of these acts and
regulations are complex. However, as a result of the enactment of the Natural
Gas Wellhead Decontrol Act of 1989 (the "Decontrol Act"), the remaining
restrictions imposed on the NGA and the NGPA with respect to "first sales"
terminate on the earlier of January 1, 1993 or the expiration of the applicable
contract. Any gas not otherwise deregulated prior to January 1, 1993 was
deregulated as of that date. The effect of the Decontrol Act is to remove all
remaining price controls under the NGPA and to remove all remaining FERC
certificate and abandonment jurisdiction otherwise applicable to producers under
the NGA.
Several major regulatory changes have been implemented by the FERC from 1985
to the present that affect the economics of natural gas production,
transportation and sales. In addition, the FERC continues to promulgate
revisions to various aspects of the rules and regulations affecting those
segments of the natural gas industry which remain subject to the FERC's
jurisdiction. The stated purpose of many of these regulatory changes is to
12
<PAGE>
promote competition among the various sectors of the gas industry. The ultimate
impact of the complex and overlapping rules and regulations issued by the FERC
since 1985 cannot be predicted. In addition, many aspects of these regulatory
developments have not become final but are still pending judicial and FERC final
decisions.
FERC has issued Orders 636 and 636-A for the purpose of restructuring the
gas pipeline sales and transportation services in the United States to promote
competition in all phases of the gas industry. The impact of these FERC Orders
has significantly altered the traditional way natural gas has been purchased,
transported, and sold. The restructuring requirements that have emerged from the
administrative and judicial review process has varied significantly from those
previously in effect.
The price at which the Company's natural gas may be sold will continue to be
affected by a number of factors, including the price of alternate fuels such as
oil and coal and competition among various natural gas producers and marketers.
Environmental Regulation -- Various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment, may affect the
Company's operations and costs as a result of the effect on oil and gas
exploration, development and production operations. At present, substantially
all of the Company's U.S. production of crude oil, condensate and natural gas is
in states having conservation laws and regulations. It is not anticipated that
the Company will be required in the near future to expend amounts that are
material in relation to its total capital expenditures program by reason of
environmental laws and regulations, but inasmuch as such laws and regulations
are frequently changed, the Company is unable to predict the ultimate cost of
compliance. The Company is able to control directly the operations of only those
wells of which it acts as operator. Notwithstanding the Company's lack of
control over wells operated by others, the failure of the operator to comply
with applicable environmental regulations may, in certain circumstances, be
attributable to the Company.
State Regulation -- State statutes and regulations require permits for
drilling operations, drilling bonds and reports concerning operations. The
Railroad Commission of Texas regulates the production of oil and natural gas
produced by the Company in Texas. Similar regulations are in effect in all
states in which the Company produces oil and natural gas. Most states in which
the Company owns and operates properties have statutes, rules or regulations
governing conservation matters, including the unitization or pooling of oil and
gas properties, establishing of maximum rates or production from oil and gas
wells and the spacing of such wells. Many states also restrict production to the
market demand for oil and gas. Such statutes and regulations may limit the rate
at which oil and gas could otherwise be produced from the Company's properties.
Some states have enacted statutes prescribing ceiling prices for gas sold within
their state.
Many states have issued new regulations under authority of the Clean Air Act
Amendments of 1990, and such regulations are in the process of being
implemented. These regulations may require certain oil and gas related
installations to obtain federally enforceable operating permits and may require
the monitoring of emissions; however, the impact of these regulations on the
Company is expected to be minor. Several states have also adopted regulations on
the handling, transportation, storage, and disposal of naturally occurring
radioactive materials that are found in oil and gas operations.
ITEM 3. LEGAL PROCEEDINGS.
Gruy Petroleum Management Co. is involved in several legal and
administrative proceedings arising in the ordinary course of its oil and gas
management business, none of which are material in the opinion of Management.
Although the ultimate outcome of these proceedings cannot be ascertained at this
time, management believes that the ultimate resolution of these matters will be
favorable. See Note 6 to the Financial Statements (Item 7 of this Form 10-KSB).
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS.
The Company had no matters requiring a vote of security holders during the
fourth quarter of 1995 nor any as of March 31, 1996.
14
<PAGE>
P A R T II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED MATTERS.
The Company's Common Stock is traded on the Boston Stock Exchange and the
over-the-counter market. No cash dividends have been declared or paid during the
past two years with respect to the Common Stock of the Company. The table below
reflects inter-dealer prices without retail mark-up, mark-down or conversion,
and may not represent actual transactions. The following table indicates the
high and low sales price for the Company's Common Stock for each quarter during
the past two years as reported by the Boston Stock Exchange:
HIGH LOW
---- ---
Ending December 31, 1995
Fourth Quarter 7/16 1/4
Third Quarter 1/2 5/16
Second Quarter 7/16 1/8
First Quarter 3/8 1/8
Ending December 31, 1994
Fourth Quarter 7/16 1/4
Third Quarter 11/16 5/16
Second Quarter 3/4 5/16
First Quarter 3/4 5/16
The Company has declared no dividends on its Common Stock during 1994, 1995
or through March 31st of 1996. There are restrictions on the Company with
respect to declaring dividends on its common stock due to certain loan agreement
covenants with its primary commercial bank.
The following table indicates the approximate number of holders of record
of the Registrant's Common Stock as of March 31, 1996:
TITLE OF CLASS NUMBER OF HOLDERS OF RECORD
-------------- ---------------------------
COMMON STOCK--$.10 PAR VALUE 3,275
Note: The approximate number of holders of record does not include participants
in securities position listings.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes associated with them
contained elsewhere in this report. This discussion should not be construed to
imply that the results discussed herein will necessarily continue into the
future or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents only the best
present assessment of management of the Company.
On July 21, 1995, Magnum closed a definitive agreement to combine (the
"Business Combination") with Hunter Resources, Inc. ("Hunter"), subject to
Hunter shareholder approval. Pursuant to the definitive agreement, Magnum issued
to Hunter 2,750,000 shares of newly issued Magnum restricted common stock in
exchange for substantially all of the assets of Hunter subject to its associated
liabilities. Hunter's assets primarily consisted of stock in wholly-owned
subsidiaries and stock ownership interests in limited liability companies
("Hunter Subsidiaries").
15
<PAGE>
On December 19, 1995 to be effective December 22, 1995, Magnum and
Hunter entered into an Agreement and Plan of Reorganization and Plan of
Liquidation, as amended. The amendment was executed on December 19, 1995 by
Hunter shareholders holding in excess of fifty percent (50%) of the outstanding
common stock of Hunter and one hundred percent (100%) of the outstanding
preferred stock of Hunter. The amended agreement provided for the issuance to
Hunter of an additional 2,335,077 shares of newly issued Magnum restricted
common stock and 111,825 shares of Magnum Series C preferred stock. In summary,
the total consideration paid by Magnum for the Hunter subsidiaries was 5,085,077
shares of Magnum restricted common stock and 111,825 shares of Magnum Series C
preferred stock.
As stated, the amended agreement was executed by Hunter shareholders
owning in excess of fifty percent (50%) of the outstanding common stock of
Hunter and one hundred percent (100%) of the outstanding preferred stock of
Hunter. According to Pennsylvania law, Hunter shareholders have no dissenter
rights. However, Hunter is required to distribute an Information Statement and
hold a special meeting of its shareholders to formally approve the agreement.
Subsequent to the Business Combination, Magnum has conducted its oil and gas
operations and energy related acquisitions in conjunction with the Hunter
Subsidiaries. Existing management of Hunter has taken over all day to day
operations of Magnum. Acquisitions completed by Magnum and Hunter after the
initial agreement, were completed by Magnum Hunter Production, Inc. ("Magnum
Hunter"), a Hunter Subsidiary. Hunter and its subsidiaries were consolidated
into Magnum's financial statements beginning December 31, 1995, so, no operating
assets and liabilities are included in Hunter's balance sheet as of December 31,
1995. Hunter's balance sheet at that date is presented as a "statement of net
assets in liquidation" because the only asset is the investment in Magnum stock,
which will ultimately be distributed to Hunter's shareholders.
On March 31, 1995, the Company closed on an acquisition of domestic
producing oil and gas properties for $1.4 million. The purchase price was
comprised of $1.2 million cash, $200,000 in restricted common stock of Hunter
valued at $.3875, and had an effective date of January 1, 1995. Additionally,
the seller was granted a put option for the Company to buy back the Hunter
shares for $200,000. In April 1996 the put option expired unexercised.
On October 18, 1995, Magnum Hunter closed on an acquisition of the
remaining seventy-five percent (75%) ownership interest in an affiliated company
from a joint venture partner. The purchase price of $1,075,287 consisted of i)
$300,000 in cash, ii) $300,000 represented by 85,131 shares of restricted common
stock of Magnum valued at $3.52 per share and iii) the assumption of existing
bank indebtedness of $475,287. As additional consideration, 50,000 warrants to
purchase common stock of Magnum were issued at exercise prices ranging from
$4.00 to $4.50 per share. The effective date of the acquisition was July 1,
1995.
On October 25, 1995, Magnum Hunter closed on an acquisition of domestic
producing oil and gas properties. The purchase price was comprised of $2.058
million cash, funded by an existing bank line of credit, and $257,000
represented by 64,176 shares of Magnum restricted common stock valued at $4.00
per share. The acquisition had an effective date of August 1, 1995.
On November 6, 1995, Magnum Hunter entered into an increased $20
million revolving credit agreement with First Interstate Bank of Texas, N.A.
("FITX"). The previous line of credit was in the maximum amount of $10 million
and was entered into by Hunter prior to the Business Combination with Magnum.
The new line of credit facility is secured by oil and gas properties and gas
gathering system assets subject to a borrowing base determination established
from time to time by FITX. At that time, the available combined borrowing base
was increased to $8.7 million of which $7.8 million represented the portion
attributable to the oil and gas properties. In March 1996, the oil and gas
property borrowing base was increased to $9.0 million while the gas gathering
borrowing base remained unchanged. Outstanding borrowings as of March 19, 1996
bear interest at prime plus one percent (1%) per annum.
16
<PAGE>
On November 9, 1995, Magnum Hunter closed on an acquisition of domestic
producing oil and gas properties for approximately $4.229 million. The initial
purchase price was comprised of $3.104 million cash, funded by the bank line of
credit, and a note payable to the previous owner in the amount of $1.125 million
secured by 610,170 shares of restricted common stock of Magnum. The promissory
note due to the previous owner was repaid in full in March 1996, funded by the
Company's existing line of credit, and the restricted common stock of Magnum
securing such obligation was subsequently canceled.
On December 1, 1995, Magnum Hunter closed on an acquisition of two
unregulated gas gathering systems. The total consideration was approximately $1
million cash, funded substantially by the line of credit with FITX.
RESULTS OF OPERATIONS.
----------------------
As discussed in Notes 1 and 3 to the consolidated financial statements, a
vital part of the definitive agreement for the Business Combination with Magnum
is a provision for the liquidation of the Company upon formal shareholder
approval of the definitive agreement and the exchange of Magnum shares for
existing Company shares. As a result, the Company has changed its basis of
accounting at and for periods subsequent to December 31, 1995 to the liquidation
basis of accounting, assets are to be restated to estimated net realizable value
and liabilities are to be stated at their estimated settlement value. As the
Company's only remaining asset is its investment in Magnum shares which are
ultimately to be distributed to the Company's shareholders in exchange for
existing shares of the Company, no liquidation basis adjustments to the
Company's assets and liabilities were necessary at December 31, 1995.
Since all of the Company's operating assets and liabilities were disposed
of effective December 31, 1995, the Company's revenues and expenses for 1995 and
1994 have been netted and presented as discontinued operations in the Company's
statements of operations. The Company's revenues and other operating information
from its industry segments are presented in Note 10 to the financial statements.
The following discussion of results of operations for the years ended 1995 and
1994 is presented with respect to the normal components presented on a going
concern basis.
The Company incurred a net loss applicable to common shares of $691,000
(including dividend payments of $9,000) for the year ended December 31, 1995,
compared to net income applicable to common shares of $6,000 (including dividend
payments of $9,000) for the same period of the preceding year. The loss during
1995 resulted substantially from non-recurring non-cash items totaling $438,000
and a substantial decline in the Company's 1995 revenues from oil field service
activities as compared to 1994 activities. Of the 1995 noncash items, a $338,000
charge was recorded as additional depreciation to adjust a pipeline gathering
system to its net realizable value. In addition, the Company accrued $100,000
for potential expenses to be incurred in settlement of certain pending
litigation.
Total revenue for the year ended December 31, 1995 rose to $2,967,000 from
$2,356,000 in 1994. Revenue from oil and gas sales increased 180 percent during
1995 to $1,625,000 compared to $581,000 in 1994. The sharp rise in oil and gas
revenue is largely attributable to the Company's acquisition of oil and gas
properties in 1995. Quantities of oil and gas produced during 1995 totaled
54,307 barrels of oil at a weighted average price of $16.09 per barrel and
445,886 mcf of gas at a weighted average price of $1.69 per mcf. Quantities of
oil and gas produced during 1994 totaled 24,605 barrels of oil at a weighted
average price of $13.70 per barrel and 127,854 mcf of gas at a weighted average
price of $1.90 per mcf.
Gas gathering and marketing revenues rose slightly to $469,000 in 1995 as
compared to $443,000 for 1994 as the revenues from the acquisition of two
gathering systems on December 1, 1995 offset the impact of lower marketing
revenue from the Company's Schulter system in Oklahoma. The lower revenue from
the Schulter
17
<PAGE>
system was the result of a new gas contract entered into in late 1994 which
provided for a lower sales price on certain wells outside of the dedicated area.
Oil field services revenue declined 50 percent to $565,000 in 1995 from
$1,122,000 in 1994 due to the loss in late 1994 of a contract for the operation
of approximately 400 wells. Interest and other income rose 47 percent in 1995 to
$308,000 from $210,000 in 1994 as a result primarily of noncash write-offs of
unidentified old liabilities on which the Company has not had any inquiries on.
Lease operating expenses rose 85 percent to $762,000 in 1995 from $412,000
in 1994. On an equivalent barrel basis, the operating expense decreased to $5.92
per barrel in 1995 from $8.96 in 1994. The improvement is attributable to the
lower operating expense per barrel ratio on properties acquired in late 1995.
Depreciation and depletion rose to $919,000 in 1995 from $263,000 in 1994 as a
result of an increase in the depletable book value of the Company's properties
acquired in 1995, the increase in production volumes, and a $338,000 noncash
charge as additional depreciation to adjust a pipeline gathering systems to its
net realizable value.
Purchases of natural gas and pipeline operating expenses rose 22 percent to
$414,000 in 1995 versus $338,000 in 1994 largely for the reasons cited above for
the increase in gas gathering and marketing revenues. Cost of services declined
31 percent to $454,000 in 1995 from $654,000 in 1994 due to a reduction of staff
in late 1994 necessitated by the loss of a contract for the operation of
approximately 400 wells.
General and administrative expenses ("G&A") of $702,000 in 1995 as compared
to $513,000 in 1994 were significantly higher due to the Company's provision for
noncash bad debt expense of $165,000 for an increase in the allowance for
doubtful accounts. Interest expense of $292,000 in 1995 is higher over the
$44,000 in the 1994 period as a result of increased borrowing levels in 1995
related to the oil and gas properties and pipelines acquired.
LIQUIDITY AND CAPITAL RESOURCES.
--------------------------------
For 1995, the Company had a net decrease in cash of $25,000 primarily as
the proceeds received from borrowing activities were principally used for oil
and gas and pipeline acquisitions. The Company's operating activities provided
net cash of $1,182,000 principally as a result of an increase in accounts
payable and due to affiliates with a partially offsetting increase in notes and
accounts receivable, all largely the result of the Company's increased
activities in the acquisition area. Investing activities used net cash of
$9,251,000 largely from acquisitions of oil and gas properties and pipelines.
Financing activities accounted for net cash provided of $8,044,000 principally
from the proceeds from borrowings under the Company's line of credit utilized
for acquisitions of oil and gas properties and pipelines mentioned above.
Partially offsetting the borrowings were repayments made on bank debt
obligations.
During 1994, operating activities provided net cash of $400,000 while the
Company used $807,000 of net cash in investing activities, consisting mostly of
payments to purchase oil and gas properties and $335,000 of net cash was
provided by financing activities, which was primarily the result of net proceeds
from debt borrowings and the sale of common stock. The Company had a net
decrease of cash for the year of $72,000 as the cash received from its operating
activities, borrowings and offerings was used largely to acquire oil and gas
properties.
As discussed above, the Company's capital stock ownership in subsidiaries
and limited liability companies were acquired by Magnum effective December 22,
1995. Therefore, the Business Combination with Magnum left the Company with no
income producing assets. The Company's planned liquidation should occur in 1996.
Any required sources of funds to that date will be provided by Magnum as a part
of the Business Combination.
18
<PAGE>
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS AND UNAUDITED SUPPLEMENTAL
INFORMATION.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditor's Report.................................................F-1
Financial Statements:
Consolidated Statement of Net Assets in Liquidation at December 31, 1995..F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1995, and 1994.............................................F-3
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1995 and 1994..................................F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994..............................................F-5
Notes to Consolidated Financial Statements...................................F-6
Supplemental Information (Unaudited)........................................F-14
19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Hunter Resources, Inc.
We have audited the consolidated statement of net assets in liquidation of
Hunter Resources, Inc. and subsidiaries as of December 31, 1995. In addition, we
have audited the consolidated statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 3 to the consolidated financial statements, a majority of
the Company's stockholders approved a plan to dispose of the Company's operating
assets and liabilities as of December 22, 1995 and subsequently liquidate the
Company. As a result, the Company has changed its basis of accounting as of
December 31, 1995 from the going-concern basis to a liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets in liquidation of Hunter Resources, Inc.
and subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for the years ended December 31, 1995 and 1994, in
conformity with generally accepted accounting principles applied on the bases
described in the preceding paragraph.
HEIN + ASSOCIATES LLP
April 3, 1996
Dallas, Texas
F-1
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
DECEMBER 31, 1995
ASSET
Investment in securities, at estimated market value $ 12,495,000
Less deferred gain (10,333,000)
Net investments in securities ------------
2,162,000
------------
Total Assets $ 2,162,000
================
STOCKHOLDERS' EQUITY
Commitments and contingencies (Note 6)
Stockholders' Equity:
Preferred stock, no par value: 1,000,000 shares authorized
for each Class A,B,C; 90,000 shares
(Class A, Series 1) issued and outstanding $ 90,000
Common Stock, $.10 par value; 100,000,000 shares authorized;
18,454,000 shares issued and outstanding 1,845,000
Additional paid-in capital 1,834,000
Accumulated (deficit) (1,397,000)
-----------
2,372,000
Treasury stock and put option (210,000)
-----------
Total Stockholders' Equity 2,162,000
===========
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
1995 1994
------------ -----------
DISCONTINUED OPERATIONS
Income (loss) from operations $ (682,000) $ 15,000
------------ -----------
NET INCOME (LOSS) (682,000) 15,000
PREFERRED DIVIDENDS (9,000) (9,000)
------------ -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (691,000) $ 6,000
============ ===========
NET INCOME (LOSS) PER SHARE $ (0.04) $ *
------------ -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 18,072,000 17,333,000
============ ===========
* Less than $.01 per share.
The accompanying notes are an integral part of these statements
F-3
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in Treasury Stock Advances
Excess of Accumulated and Put Option to
Shares Amount Shares Amount Par Value (Deficit) Shares Amount Affiliates
------ ------ ------ ------ --------- --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 90,000 $90,000 16,566,000 $1,657,000 $1,457,000 $(712,000) 22,000 $(10,000) $(64,000)
Net Income 15,000
Preferred dividends 9,000 (9,000)
Common stock issued for liabilities 241,000 24,000 36,000
Common stock issued for cash 279,000 28,000 73,000
Common stock issued for services 380,000 38,000 46,000
Payments and advances
to affiliates, net 64,000
BALANCE, DECEMBER 31, 1994 90,000 90,000 17,466,000 1,747,000 1,621,000 (706,000) 22,000 (10,000)
Net loss (682,000)
Preferred dividends 9,000 (9,000)
Common stock issued for cash 400,000 40,000 35,000
Common stock issued to acquire oil
and gas properties 588,000 58,000 169,000
Put stock issued for assets
acquired 516,000 (200,000)
Unrealized gain on investments
BALANCE, DECEMBER 31, 1995 90,000 $90,000 18,454,000 $1,845,000 $1,834,000 $(1,397,000) 538,000 $(210,000) $ -
====== ======= ========== ========== ========== ============ ======= ========== =======
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (682,000) $ 15,000
-------------- -----------
Adjustments to reconcile to net cash
provided by operating activities:
Litigation accrual 100,000 -
Common stock issued for services - 84,000
Depreciation, depletion, amortization, and impairment 919,000 263,000
Gain on sale of assets (27,000) -
Adjustment of allowances and payables (35,000) (138,000)
Change in assets and liabilities:
(Increase) decrease in notes and accounts
receivable, trade and affiliates (620,000) (11,000)
(Increase) decrease in other current assets 32,000 39,000
(Increase) decrease in other assets (102,000) -
Increase (decrease) in accounts payable,
accrued liabilities and suspended revenue payable 861,000 121,000
Increase (decrease) in due to affiliates 753,000 -
Increase (decrease) in other liabilities (17,000) 27,000
------- ------
Total adjustments 1,864,000 385,000
--------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES: 1,182,000 400,000
--------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 28,000 23,000
Additions to property and equipment (9,279,000) (830,000)
---------- --------
NET CASH USED FOR INVESTING ACTIVITIES: (9,251,000) (807,000)
---------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 9,818,000 493,000
Payments on long tern debt (2,182,000) (259,000)
Proceeds from production payable 300,000 -
Payments on production payable (12,000) -
Proceeds from sale of stock 75,000 101,000
Other 45,000 -
---------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,044,000 335,000
--------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (25,000) (72,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 25,000 97,000
------ ------
CASH AND CASH EQUIVALENTS, END OF YEAR $ - $ 25,000
============== ===========
</TABLE>
The accompanying notes are an integral part of these statements
F-5
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(1) NATURE OF OPERATIONS AND PRESENTATION:
Hunter Resources, Inc. and Subsidiaries (the "Company"), formerly
Intramerican Corporation, a Pennsylvania Corporation, has historically been
engaged in the acquisition, operation, and development of oil and gas
properties; the gathering, transmission and marketing of natural gas; providing
of management and advisory consulting services on oil and gas properties for
third parties; and providing consulting and U.S. export services to facilitate
Latin American trade in energy products. The Company previously owned and
operated oil and gas properties in five states, predominantly in the Southwest
region of the United States. In addition, the Company owned and operated three
gathering systems located in Texas, Louisiana and Oklahoma.
As more fully discussed in Note 3, Magnum Petroleum, Inc. ("Magnum")
entered into an amended definitive agreement on December 19, 1995 to acquire
substantially all of the assets, subject to the existing liabilities, of the
Company. The assets consisted primarily of the capital stock ownership in
wholly-owned subsidiaries and capital stock ownership interests in limited
liability companies. The purchase was accounted for by the purchase method
effective December 31, 1995. As such, the accompanying consolidated financial
statements for 1995 do not include the balance sheet accounts of the Company and
its subsidiaries. However, the Statement of Operations for 1995 does include the
operations of the Company and its subsidiaries for 1995. A vital part of the
definitive agreement is a provision for the liquidation of the Company upon
formal shareholder approval of the agreement and the exchange of Magnum shares
for existing Company shares. As a result, the Company has changed its basis of
accounting as of and for periods subsequent to December 31, 1995 to the
liquidation basis of accounting.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries and its pro-rata share of the
accounts of an oil and gas limited liability company in which the Company owned
less than a controlling stock ownership interest until October 1995 when the
Company purchased the remaining stock ownership interest from a third party. The
major operating subsidiaries of the Company were Magnum Hunter Production, Inc.,
Gruy Petroleum Management Company and Hunter Gas Gathering, Inc. All significant
intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to the consolidated financial
statements of the prior year to conform with the current presentation. See Note
1.
FINANCIAL INSTRUMENTS
---------------------
The Company's investment in securities is classified as a financial
instrument. The estimated market value of this investment is based upon quoted
prices that have been discounted by management due to the significant amount of
the investment held by the Company.
The put option on common stock (Note 5) is also classified as a financial
instrument. The option is recorded as a $200,000 reduction of stockholders'
equity, but management estimates the market value of the put option as zero at
December 31, 1995 because the option subsequently expired unexercised.
OIL FIELD SERVICES AND DRILLING OPERATIONS
------------------------------------------
The Company receives management and consulting fees for drilling, operating
and providing related services to oil and gas wells. These fees are recognized
as earned.
F-6
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
OIL AND GAS PROPERTIES
----------------------
The Company follows the full-cost method of accounting for oil and gas
properties, as prescribed by the Securities and Exchange Commission ("SEC").
Accordingly, all costs associated with acquisition, exploration and development
of oil and gas reserves, including directly related overhead costs, are
capitalized.
All capitalized costs of oil and gas properties, including the estimated
future costs to develop proved reserves, are amortized on the unit-of-production
method using estimates of proved reserves. Cost directly associated with the
acquisition and evaluation of unproved properties are excluded from the
amortization base until the related properties are evaluated. Such unproved
properties are assessed periodically and a provision for impairment is made to
the full-cost amortization base when appropriate. Sales of oil and gas
properties are credited to the full-cost pool unless the sale would have a
significant effect on the amortization rate. Abandonments of properties are
accounted for as adjustments to capitalized costs with no loss recognized. The
net capitalized costs are subject to a "ceiling test," which limits such costs
to the aggregate of the estimated present value of future net revenues from
proved reserves discounted at ten percent based on current economic and
operating conditions.
PIPELINES
---------
Pipelines are carried at cost. Depreciation is provided using the
straight-line method over an estimated useful life of 15 years. Gain or loss on
retirement or sale or other disposition of assets is included in income in the
period of disposition. During 1995, the Company recorded a $338,000 charge as
additional depreciation to adjust a gathering system to its net realizable
value.
SERVICE EQUIPMENT AND OTHER
---------------------------
Service equipment and other property and equipment are carried at cost.
Depreciation is provided using the straight-line method over estimated useful
lives ranging from five to ten years. Gain or loss on retirement or sale or
other disposition of assets is included in income in the period of disposition.
IMPACT OF RECENTLY ISSUED PRONOUNCEMENTS
----------------------------------------
The Financial Accounting Standards Board (FASB) has issued Statement No.
121, "Accounting for Impairments of Long-Lived Assets" and Statement No. 123,
"Accounting for Stock-Based Compensation". Management believes neither of these
accounting standards will impact the Company's financial statements.
USE OF ESTIMATES AND CERTAIN SIGNIFICANT ESTIMATES
--------------------------------------------------
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
F-7
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
INCOME TAXES
------------
The Company files a consolidated federal income tax return. The Company
applies Statement of Accounting Standards No. 109 (SFAS 109). As required by
SFAS 109, income taxes provided are for the tax effects of transactions reported
in the financial statements and consist of taxes currently due, if any, plus net
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. Deferred tax assets and
liabilities represent the future tax return consequences of those differences
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred tax assets include recognition of operating
losses that are available to offset future taxable income and tax credits that
are available to offset future income taxes. Valuation allowances are recognized
to limit recognition of deferred tax assets where appropriate. Such allowances
may be reversed when circumstances provide evidence that the deferred tax assets
will more likely than not be realized.
INTANGIBLE ASSETS
-----------------
The excess of cost over the fair value of net assets acquired (goodwill)
has been amortized using the straight-line method. Through December 31, 1995,
approximately $1,158,000 was being amortized over a thirty year period and
$37,000 was being amortized over a five year period.
EARNINGS PER SHARE
------------------
Per share information is based on the weighted average number of common
stock and common stock equivalent shares outstanding. Common equivalent shares
arising from dilutive stock options outstanding are computed using the treasury
stock method. Stock options and convertible securities were antidilutive at
December 31, 1995 and 1994. The weighted average number of common stock and
common stock equivalent shares outstanding used in the calculation of primary
net income per share was 18,072,000 in 1995 and 17,333,000 in 1994.
(3) LIQUIDATION BASIS OF ACCOUNTING AND DISCONTINUED OPERATIONS:
Magnum executed a definitive agreement on July 21, 1995 to acquire
substantially all of the assets of the Company, subject to the existing
liabilities. Pursuant to the agreement, Magnum issued, subject to shareholder
approval, 2,750,000 shares of its restricted common stock to the Company in
exchange for the assets acquired. In addition, 575,000 shares of Magnum
restricted common stock were issued to a third party investment banking firm as
compensation and considered an additional cost of the acquisition. The firm
subsequently distributed a total of 250,000 of the shares to a former director
and a former officer of Magnum for their assistance in completing the
acquisition.
On December 19, 1995 to be effective December 22, 1995, Magnum and the
Company entered into an amended agreement. Under the terms of the amendment,
which was executed by Company shareholders representing over fifty percent (50%)
of the common stock of the Company and one hundred percent (100%) of the
outstanding preferred stock of the Company, an additional 2,335,077 shares of
Magnum restricted common stock and 111,825 shares of Magnum Series C preferred
stock were issued to the Company. Therefore, the total consideration paid by
Magnum to the Company for subsequent distribution to the Company's respective
shareholders was 5,085,077 shares of restricted common stock and 111,825 shares
of Series C preferred stock. The acquisition was recorded by Magnum under the
"purchase method" of accounting, based upon the estimated value of the shares
issued of $12,495,000. The operations of the Company have been consolidated with
those of Magnum beginning on December 31, 1995.
A vital part of the definitive agreement with Magnum is a provision for the
liquidation of the Company upon formal shareholder approval of the agreement and
the exchange of Magnum shares for existing Company shares. As a result, the
F-8
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Company has changed its basis of accounting at and for periods subsequent to
December 31, 1995 to the liquidation basis of accounting. In accordance with the
liquidation basis of accounting, assets are to be restated to estimated net
realizable value and liabilities are to be stated at their estimated settlement
value. As the Company's only remaining asset is its investment in Magnum shares
which are ultimately to be distributed to the Company's shareholders in exchange
for existing shares of the Company, no liquidation basis adjustments to the
Company's assets and liabilities were necessary at December 31, 1995.
Since all of the Company's operating assets and liabilities were disposed
of effective December 31, 1995, the Company's revenues and expenses for 1995 and
1994 have been netted and presented as discontinued operations. The Company's
revenues and other operating information from its industry segments are
presented in Note 10.
(4) STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
The following disclosures provide supplemental information with respect to
the Company's statements of cash flows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
Non-Cash Investing and Financing Activities 1995 1994
------------------------------------------- ---- ----
<S> <C> <C>
Oil and gas properties acquired in exchange for common stock $ 227,000 $ -
============= =========
Oil and gas properties acquired in exchange for note payable $ 1,125,000 $ -
============= =========
Net assets exchanged for stock of Magnum (including $ 12,495,000 $ -
============= =========
unrealized appreciation of $10,333,000)
Stock issued in settlement of liabilities $ - $ 60,000
============= =========
Other:
------
Interest paid $ 325,687 $ 43,000
============= =========
</TABLE>
(5) ACQUISITIONS AND SALES OF PROPERTY:
In 1995, the Company closed an acquisition of domestic producing oil and
gas properties for $1.4 million. The purchase price was comprised of $1.2
million cash and $200,000 in restricted common stock of Hunter, valued at $.3875
per share. Additionally, the seller was granted a put option for the Company,
which was personally guaranteed by the Company's President, to buy back the
Hunter shares for $200,000 beginning March 31, 1996. The put option was assumed
by Magnum in the combination with Hunter and in April 1996 the put option
expired unexercised.
During 1995, the Company acquired the remaining seventy-five percent (75%)
ownership interest in an affiliated company from a joint venture partner. The
purchase price of $1,075,000 consisted of i) $300,000 in cash, ii) $300,000
represented by 85,131 shares of restricted common stock of Magnum valued at
$3.52 per share and iii) the assumption of existing bank indebtedness of
$475,000. As additional consideration, 50,000 warrants to purchase common stock
of Magnum were issued at exercise prices ranging from $4.00 to $4.50 per share.
Also in 1995, the Company acquired producing oil and gas properties for
$2,315,000 from a third party. The purchase price was comprised of $2,058,000
cash, funded by the Company's bank line of credit, and $257,000 represented by
64,176 shares of Magnum restricted common stock valued at $4.00 per share.
F-9
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
During 1995, the Company acquired producing oil and gas properties from a
third party for approximately $4,229,000. The initial purchase price was
comprised of $3,104,000 cash, funded by the Company's line of credit with a
bank, and a note payable to the previous owner of the properties in the amount
of $1,125,000 secured by 610,170 shares of Magnum restricted common stock.
Additionally, in 1995 the Company acquired two unregulated gas gathering
systems from a publicly held company. The total consideration was $1,000,000,
funded substantially by the Company's line of credit with a bank.
Including the Company's pro-rata interest in certain assets, the Company
acquired oil and gas producing properties with proved reserves, as estimated by
the Company's independent petroleum engineer during 1994 of approximately 32,000
barrels of oil and 1,389,000 MCF of natural gas (unaudited). The Company's costs
of the property acquisitions were approximately $749,000 for 1994.
The Company sold oil and gas properties with proved reserves, as estimated
by the Company's independent petroleum engineer during 1994 of approximately
1,000 barrels of oil and 33,000 MCF of natural gas (unaudited). The net proceeds
of approximately $23,000 was credited to oil and gas properties.
(6) COMMITMENTS AND CONTINGENCIES:
A subsidiary of the Company was a defendant in litigation brought by
Oklahoma Gas & Electric Company against IOM Gas, Inc. ( IOM), now known as
Hunter Gas Gathering, Inc., and another third party, a company controlled by the
Company's former Chairman. A settlement agreement was executed in 1994 by the
Company and $117,000 was charged to operations representing the legal costs
associated with defending the Company's interest in the litigation.
At December 31, 1995, the Company is involved in litigation proceedings
arising in the normal course of business. The Company accrued $100,000 as of
December 31, 1995 for potential legal expenses to be incurred in defending
itself and ultimate settlement of the litigation. In the opinion of management,
any additional liabilities resulting from such litigation would not have a
material effect on the Company's financial condition. As a part of the
combination with Magnum, any liability related to lawsuits was assumed by
Magnum.
The Company had an employment agreement with the President that required
minimum monthly salary payments of $9,583 through December 31, 1994. The
agreement may be terminated by the Company only with cause. The agreement
automatically renews for successive one year periods unless terminated by either
party. If the Company terminates the agreement, the President is entitled to a
severance payment of $57,500.
The Company had a non-cancelable lease agreement extending to November 1,
2001 on its corporate headquarters. In addition, the Company had a lease for
office equipment which extended until 1998. Both lease agreements were assumed
by Magnum in the combination with the Company. The Company incurred rental
expense of $114,000 and $90,000 for the years ended December 31, 1995 and 1994,
respectively.
(7) RELATED PARTY TRANSACTIONS:
On September 1, 1992, the Company entered into a Resignation Agreement
(the "Agreement") with the then Chairman of the Company. The Agreement provided
for a cash payment of $55,086 to the former Chairman in exchange for the
cancellation of the former Chairman's employment agreement with the Company.
Additionally, certain accounts receivable
F-10
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
due from the former Chairman and a corporation controlled by him, totaling
$36,199 at August 31, 1992, have been recharacterized as a note receivable
bearing interest at 8% per annum and maturing in a lump sum in December, 1995.
The note is collateralized by a second mortgage against a gas gathering system
and was acquired by Magnum in the combination with the Company.
In connection with the combination with the Company, Magnum assumed a note
receivable from a company affiliated with the President of the Company in the
amount of $54,615 at December 31, 1995. This note bears interest at ten percent
and is due on demand. Additionally, trade accounts receivable from this
affiliated company were $51,346 at December 31, 1995.
At December 31, 1995, the Company had unsecured accounts receivable from the
President personally in the amount of $10,000 as of December 31, 1995, which
amount has been subsequently repaid.
The Vice Chairman of the Board has a Consulting and Advisory Agreement (the
"Agreement") with the Company providing, among other things, for a compensation
plan in connection with his capacity as Business Development Manager of the
Company. The Agreement, which expires in September 1996, provides general
compensation guidelines to be considered in determining fees or other
consideration that could be provided to the Vice Chairman for his role in
arranging such transactions as oil and gas property acquisitions, mergers, the
obtaining of management contracts or other business directly attributable to his
efforts. Under the Agreement, Mr. Lutz provides his time and expertise without
salary, but is provided with office space and certain expense reimbursements.
The Agreement also provided for options to purchase 200,000 shares of restricted
common stock of the Company for a period of five years at an exercise price of
$0.1875 per share. During 1995, the Vice Chairman was granted options to
purchase 100,000 shares of common stock at $.1875 per share over a five year
period. Also, in 1995 the Vice Chairman exercised options to purchase 100,000
shares of common stock at $.1875 per share.
At December 31, 1995, the Company had a Note Receivable with a balance of
$120,758 from a minority owner in an affiliated limited liability company. The
note provided for interest at ten percent and had a due date of December 31,
1995, which was extended to June 30, 1996. The note was acquired by Magnum in
the combination with the Company.
(8) EQUITY TRANSACTIONS AND STOCK OPTIONS:
Upon the merger of Sunbelt Energy, Inc. with a subsidiary of the Company,
the shareholders of Sunbelt received 5,585,000 shares of previously unissued and
currently unregistered common stock of the Company and 270,397 shares of Class
A, Series 1 preferred stock, designated as cumulative, convertible preferred
stock (CCP Stock), no par value. The CCP Stock has voting rights of one vote per
share and is entitled to preferred stock dividends accruing from the date of
issuance and payable in common stock of the Company. At December 31, 1995 and
1994, preferred convertible dividends in arrears totaled $9,013 for each year in
aggregate of $.38 and $.33 per common share, representing 23,478 and 26,928
shares of common stock, respectively. The CCP Stock can convert to common stock
of the Company by multiplying the number of shares being converted by a fraction
equal to $1.00 divided by the lesser of the average trading price of the common
stock of the Company or the book value of the common stock, limited to 90% of
the book value. The preferred stock is to be exchanged in the combination with
Magnum.
During 1990, the Board of Directors approved for each Director the option
to purchase 100,000 shares over the next ten years at an option price of $.1875
per share. In 1990, the President was granted the option to purchase 250,000
shares through December, 1995 at an option price of $.1875 as consideration for
his personal guarantee of the Company's indebtedness. Such option was extended
until December 31, 1996. In 1995, certain existing directors were granted
options to purchase 400,000 shares of common stock over a five year period at an
option price of $.1875 per share. During 1994, no stock options to management
and directors were exercised, however, 400,000 options were exercised by certain
directors in 1995. As of December 31, 1995, 500,000 options remain exercisable
by existing directors. As of December 31, 1995, 186,000 shares are available
under the Company's Incentive Stock Option Plan (the "Plan). During 1994, stock
options for 14,000 shares were issued and exercised under the Plan by certain
former employees of the Company.
F-11
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
In July 1995, the Company borrowed $300,000 under a production payment
obligation from a third party. As a part of the obligation, the Company also
issued to the third party warrants for the purchase of 100,000 shares of common
stock of the Company at $1.00 per share. The warrants have a five year term.
(9) SIGNIFICANT CUSTOMERS:
For the year ended December 31, 1995, no single customer accounted for ten
percent or more of the Company's gross revenue. For 1994, two customers, Oryx
Energy Company and Oklahoma Gas & Electric Company, accounted for 18 percent and
19 percent of gross revenue, respectively.
F-12
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(10) INDUSTRY SEGMENTS:
The Company and its subsidiaries were engaged in energy consulting
services, oil and gas production, and the gathering, transmission and marketing
of natural gas until December 31, 1995 as described in Note 3. The following
table sets forth information by industry segment for the years ended December
31, 1995 and 1994.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Operating revenues:
Gas gathering $ 469,000 $ 443,000
Energy consulting 565,000 1,122,000
Oil and gas production 1,625,000 581,000
------------ -----------
$ 2,659,000 $ 2,146,000
============ ===========
Operating profit (loss):
Gas gathering <F1> $ (328,000) $ 61,000
Energy consulting 30,000 383,000
Oil and gas production 408,000 35,000
------------ -----------
110,000 479,000
------------ -----------
Depreciation, depletion and amortization
Gas Gathering <F1> 383,000 44,000
Energy consulting 81,000 85,000
Oil and gas production 455,000 134,000
------------ -----------
919,000 263,000
Other income (expense):
Other income 281,000 184,000
Interest income 27,000 26,000
Interest expense (298,000) (46,000)
General and administrative (802,000) (630,000)
------------ -----------
(792,000) (464,000)
Income (loss) from discontinued operations $ (682,000) $ 15,000
============= ===========
Identifiable assets at end of period:
Gas gathering $ - $ 476,000
Energy consulting - 1,348,000
Oil and gas production - 3,111,000
------------ -----------
$ - $ 4,935,000
============ ===========
Capital expenditures during period
(including capital leases and non-cash
additions):
Gas gathering $ 1,020,000 $ 3,000
Energy consulting 25,000 52,000
Oil and gas production 9,587,000 784,000
------------ -------------
$ 10,632,000 $ 839,000
============ ============
<FN>
<F1> Includes a writedown to a pipeline of $338,000 in 1995.
</FN>
</TABLE>
F-13
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
CAPITALIZED COSTS
- -----------------
Capitalized costs and accumulated depreciation, depletion, amortization and
impairment related to the Company's oil and gas properties, all of which were
evaluated, were as follows:
At December 31,
1995 1994
---- ----
Total evaluated capitalized costs $ - $ 6,874,000
Accumulated depreciation, depletion,
amortization and impairment - (4,354,000)
------------ -------------
$ - $ 2,520,00
============ =============
COST INCURRED
- -------------
Costs incurred by the Company with respect to its oil and gas producing
activities were as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Property acquisition costs:
Proved Properties <F1> $ 9,587,000 $ 749,000
Unproved Properties - -
Exploration costs - -
Development costs - 35,000
------------ -------------
$ 9,587,000 $ 784,000
<FN>
<F1> 1995 includes non-cash additions from issuance of stock of $228,000 and
issuance of a note payable to a seller of $1,125,000.
</FN>
</TABLE>
The amortization rates for capitalized property costs, determined on an
overall basis under the unit-of-production method, were $3.54 per equivalent
barrel in 1995 and $2.92 in 1994.
RESULTS OF OIL AND GAS PRODUCING ACTIVITIES
-------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Revenues $ 1,625,000 $ 581,000
Production costs, including severance
and for ad valorem taxes (762,000) (412,000)
Depreciation, depletion, amortization,
and impairment (455,000) (134,000)
------------ -------------
Results of operations for producing
activities $ 408,000 $ 35,000
============ =============
</TABLE>
F-14
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
OIL AND GAS RESERVE INFORMATION
- -------------------------------
The estimates of proved oil and gas reserves utilized in the preparation of the
financial statements were prepared primarily by an independent petroleum
engineer in accordance and with guidelines established by the Securities and
Exchange Commission and the Financial Accounting Standards Board, which require
that reserve reports be prepared under existing economic and operating
conditions with no provision for price and cost escalation except by contractual
agreement. The Company emphasizes that reserve estimates of new discoveries or
undeveloped properties are more imprecise than those of producing oil and gas
properties. Accordingly, reserve estimates are expected to change as future
information becomes available. All of the Company's reserves are located onshore
in the continental United States.
The following unaudited table sets forth proved oil and gas reserves at December
31, 1995 and 1994, together with the changes therein:
<TABLE>
<CAPTION>
Oil and Natural
Condensate Gas
Proved developed and undeveloped reserves: (BBLS) (MCF)
------ -----
<S> <C> <C>
Balance at January 1, 1994 519,000 2,063,000
Revisions of previous estimates 604,000 (473,000)
Sales of minerals in place (1,000) (33,000)
Purchase of minerals in place 32,000 1,389,000
Production (24,000) (128,000)
------- --------
Balance at December 31, 1994 1,130,000 2,810,000
Revisions of previous estimates 761,000 1,828,000
Sales of minerals in place (3,122,000) (10,973,000)
Purchase of minerals in place 1,285,000 6,781,000
Production (54,000) (446,000)
------- --------
Balance at December 31, 1995 - -
======= ========
</TABLE>
<TABLE>
<CAPTION>
Proved developed reserves at December 31:
<S> <C> <C>
1994 762,000 2,137,000
======= =========
1995 - -
======= =========
</TABLE>
F-15
<PAGE>
HUNTER RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Reserves:
The assumptions used to compute the standardized measure are those prescribed
by the Financial Accounting Standards Board and as such, do not necessarily
reflect the Company's expectations of actual revenues to be derived from those
reserves nor their present worth. The limitations inherent in the reserve
quantity estimation process are equally applicable to the standardized measure
computations since these estimates are the basis for the valuation process.
<TABLE>
<CAPTION>
At December 31,
1995 1994
---- ----
<S> <C> <C>
Future Cash Flows $ - $ 21,706,000
Future Production Costs - (7,312,000)
Future Development Costs - 1,953,000
------------ -------------
Future Net Cash Flows, Before Income Tax - 12,441,000
Future Income Tax Expenses - (3,121,000)
------------ -------------
Future Net Cash Flows - 9,320,000
10% Discount to Reflect Timing of Net Cash Flows - (3,355,000)
- -- ------------ -------------
Standardized Measure of Discounted Future Net Cash Flows $ - $ 5,965,000
============ =============
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Reserves:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Standardized measure, beginning of year $ 5,965,000 $ 2,479,000
Revisions:
Net Change in sales price, net production costs 2,978,000 (238,000)
Revisions of quantity estimates 9,460,000 5,305,000
Accretion of discount 597,000 248,000
Changes in timing, future development and other (4,622,000) (1,277,000)
Purchases of reserves in-place 14,895,000 840,000
Sales of reserves in-place (30,508,000) (5,000)
Sales, net of production costs (863,000) (169,000)
Net changes in income taxes 2,098,000 (1,218,000)
--------- ----------
Standardized measure, end of year $ - $ 5,965,000
============= =============
</TABLE>
F-16
<PAGE>
Item 8. Change in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
20
<PAGE>
P A R T III
Item 9. Directors and Executive Officers of the Registrant.
For information with regard to the Company's current executive officers, see
Part I, Item 1, Business located in this document. The current directors of the
Company (who serve for a term of one year and until their successors are
appointed) together with certain information about them, are as follows:
<TABLE>
<CAPTION>
Name Age Director Since Officer Since Position
---- --- -------------- ------------- --------
<S> <C> <C> <C> <C>
Gary C. Evans 38 December 1990 December 1990 Chairman, President, CEO,
Director
Matthew C. Lutz 62 September 1993 September 1993 Vice Chairman and Exploration and
Business Development Manager
Gerald W. Bolfing 67 August 1993 N/A Director
Oscar Lindemann 74 November 1995 N/A Director
James E. Upfield 75 August 1992 N/A Director
</TABLE>
Mr. Evans, age 38, Chairman, President and Chief Executive Officer of Hunter
since September, 1992. Previously, President and Chief Operating Officer of
Hunter from December, 1990 to September, 1992. Chairman and Chief Executive
Officer of all of the Hunter's subsidiaries since their formation or
acquisition. From 1981 to 1985, Mr. Evans was associated with the Mercantile
Bank of Canada where he held various positions including Vice President and
Manager of the Energy Division of the southwestern United States. As an oil and
gas lending officer of a $4.5 billion Canadian bank, he initiated and managed an
energy loan portfolio in excess of $125 million. From 1978 to 1981, he served in
various capacities with National Bank of Commerce (now BancTexas) including its
Credit Manager and Credit Officer. Mr. Evans serves on the Board of Directors of
Digital Communications Technology Corporation, an American Stock Exchange listed
Company. Mr. Evans was appointed President, Chief Executive Officer and a
Director of Magnum Petroleum, Inc. in December 1995.
Mr. Lutz, age 61, Vice Chairman and Exploration and Business Development
Manager of Hunter since September 1993. From 1984 through 1992, Mr. Lutz was
Senior Vice President of Exploration and on the Board of Directors of Enserch
Exploration, Inc. with responsibility for the company's worldwide oil and gas
exploration and development program. During his tenure, Enserch substantially
increased its gas and oil reserves while having among the lowest reserve
replacement costs in the industry. Prior to joining Enserch, Mr. Lutz spent
twenty-eight years with Getty Oil Company. He advanced through several
technical, supervisory and managerial positions which gave him various
responsibilities including exploration, production, lease acquisition,
administration and financial planning. Mr. Lutz played a major role in Getty's
discoveries of reserves in the Onshore and Offshore United States. Mr. Lutz was
appointed Vice Chairman and Business Development Manager of Magnum Petroleum,
Inc. in December 1995.
Mr. Bolfing, age 66, Director of Hunter since August 1993. He is an
investor in the oil and gas business and a past officer of one of Hunter's
former subsidiaries. From 1962 to 1980, Mr. Bolfing was a partner in Bolfing
Food Stores of Waco, Texas. During this time, he also joined American Service
Company in Atlanta, Georgia, from 1964 to 1965, and was active with Cable
Advertising Systems, Inc. of Kerrville, Texas from 1978 to 1981. He joined the
Company's former subsidiary which was engaged in the well servicing business in
1981 where he remained active until its divestiture in 1992. Mr. Bolfing was
appointed as a Director of Magnum Petroleum, Inc. in December 1995.
21
<PAGE>
Mr. Lindemann, age 74, Director of Hunter since November, 1995. Mr.
Lindemann has over forty years experience in the financial industry. Mr.
Lindemann began his banking career with the Texas Bank and Trust in Dallas,
Texas in 1951. He served the bank until 1977 in many capacities, including Chief
Executive Officer and Chairman of the Board. Since leaving Texas Bank and Trust,
he has served as Vice Chairman of both the United National Bank and the National
Bank of Commerce, also in Dallas. Over many years, he has played a key role as
an innovator and consultant to the banking industry. He retired from active
involvement in commercial banking in 1987. Mr. Lindemann is a former President
of the Texas Bankers Association, and State representative to the American
Bankers Association. He was a Founding Director and Board Member of VISA, and a
member of the Reserve City Bankers Association. He has served as an instructor
at both the Southwestern Graduate School of Banking at S.M.U. and the School of
Banking of the South at L.S.U. He has also served as a faculty member for four
years in the College of Business at the University of Texas in Austin teaching
various banking subjects. Mr. Lindemann is active in the United Fund in Dallas.
He has served as Treasurer of the American Red Cross, and Chairman of the
Investment Committee of the American Lutheran Church. Mr. Lindemann was
appointed as a Director of Magnum Petroleum, Inc. in December 1995.
Mr. Upfield, age 74, Director of Hunter since August 1992. Mr. Upfield is
Chairman of Temtex Industries, Inc. (NASDAQ - "TMTX") based in Dallas, Texas, a
company that produces consumer hard goods, building materials and defense
products for the U.S. Government. In 1969, Mr. Upfield served on a select
Presidential Committee serving postal operations of the United States of
America. He later accepted the responsibility for the Dallas region which
encompassed the states of Texas and Louisiana. From 1959 to 1967, Mr. Upfield
was President of Baifield Industries and its predecessor, a company he founded
in 1949 which merged with Baifield in 1963. Baifield was engaged in prime
Government contracts for military systems and sub-systems in the production of
high strength-light weight metal products. In 1967, Baifield Industries, Inc.
was acquired by Automatic Sprinkler Corporation of America, where Mr. Upfield
remained until resigning in 1968 to pursue other business opportunities. Mr.
Upfield was appointed as a Director of Magnum Petroleum, Inc. in December 1995.
Item 10. Executive Compensation.
Compensation which the Company paid for services in all capacities for the
year ended December 31, 1995, to the executive officers of the Company is set
forth as follows:
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) * (f) (g) (h) (i)
Name, Year Salary Bonus Other Number
Principal Annual Restricted Options LTP All Other
Position Compensation Stock SARs Payouts Compensation
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary C. Evans, 1995 $110,833 $50,000 $1,816 - 100,000 - -
======== ======= ======
Chairman,
President, CEO 1994 $121,000 -0- $6,959 - - - -
======== ======= ======
1993 $113,500 -0- $8,659 - - - -
======== ======= ======
Matthew C. Lutz 1995 $ 21,000 -0- $ -0- - 100,000 - -
======== ======= ======
Vice Chairman
1994 $ 37,225 -0- $ -0- - - - -
======== ======= ======
1993 $ -0- -0- $ -0- - - - -
======== ======= ======
</TABLE>
22
<PAGE>
* Other Annual Compensation includes automobile allowances, payment for director
meetings, and insurance benefits.
Each outside director (non-officer) of the Company receives $250.00 plus
expenses for attendance at each Board of Directors meeting. Each outside
director elected prior to 1995 has previously been granted a stock option for
the purchase in whole or in part of 100,000 shares of restricted common stock of
the Company at a price of $0.1875 per share for a term of ten years from
election date or ninety days after termination or resignation as a Director,
whichever occurs first. During 1995, options to purchase 100,000 shares of
common stock at $.1875 per share over a five year period were granted to each
director. In addition, in 1995 certain directors exercised options previously
granted to purchase 400,000 shares of common stock at $.1875 per share.
The Chairman, President, and Chief Executive Officer has been granted stock
options totalling 350,000 shares exercisable under terms and conditions similar
to those granted to the outside directors. During 1995, the Chairman was granted
options to purchase 100,000 shares of common stock at $.1875 per share over a
five year period. Also, in 1995 the Chairman exercised options to purchase
100,000 shares of common stock at $.1875 per share.
The Vice Chairman of the Board has a Consulting and Advisory Agreement (the
"Agreement") with the Company providing, among other things, for a compensation
plan in connection with his capacity as Business Development Manager of the
Company. The Agreement, which expires in September 1996, provides general
compensation guidelines to be considered in determining fees or other
consideration that could be provided to the Vice Chairman for his role in
arranging such transactions as oil and gas property acquisitions, mergers, the
obtaining of management contracts or other business directly attributable to his
efforts. Under the Agreement, Mr. Lutz provides his time and expertise without a
specific salary, but at the discretion of the CEO and the Board of Directors,
Mr. Lutz may earn compensation related to his specific accomplishments and
additionally is provided with office space and certain expense reimbursements.
The Agreement also provided for options to purchase 200,000 shares of restricted
common stock of the Company for a period of five years at an exercise price of
$0.1875 per share. During 1995, the Vice Chairman was granted options to
purchase 100,000 shares of common stock at $.1875 per share over a five year
period. Also, in 1995 the Vice Chairman exercised options to purchase 100,000
shares of common stock at $.1875 per share.
At the discretion of the President, all employees of the Company are
eligible to receive options for the purchase of Common Stock under the Company's
Incentive Stock Option Plan (the "Plan"). As of December 31, 1995, 186,000 share
options were issued and 14,000 share options had been exercised under the Plan
by certain former employees.
The following tables present the options granted and exercised by executive
officers during 1995:
Option Grants in 1995
Individual Grants
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Percent of Total
Options/SARs
Options/ Granted to
SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/SH) Date
- --------------------- ----------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Gary C. Evans
Chairman, President & 100,000 25% $.1875 4/27/2000
CEO
Matthew C. Lutz
Vice Chairman 100,000 25% $.1875 4/27/2000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Option Exercises in 1995 and December 31, 1995 Option Values
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gary C. Evans
Chairman, President & 100,000 $18,750 350,000 $65,625
CEO
Matthew C. Lutz
Vice Chairman 100,000 $18,750 200,000 $37,500
</TABLE>
24
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
PRINCIPAL SHAREHOLDERS
- ----------------------
The following table sets forth certain information reflecting the holdings
of each shareholder who was known to the Company to be the beneficial owner, as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, of
five percent (5%) or more of the Common Stock or Preferred Stock of the Company
as of March 31, 1996. Unless otherwise indicated, each of the persons or
entities named below as beneficially owning the shares set forth opposite his or
its name has sole voting power and sole investment power with respect to such
shares, and the shares are directly owned.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of
Beneficial Owner Beneficial Ownership Outstanding Shares (2)
<S> <C> <C>
Gary C. Evans 5,647,759 Shares (1) 29.1%
600 East Las Colinas Blvd. 90,133 Preferred Shares (3) 100.0%
Suite 1200
Irving, Texas 75039
Jesse G. Edwards 1,537,261 Shares (4) 7.9%
1890 Valley View Lane
Tyler, Texas 75703
Gerald W. Bolfing 1,360,794 Shares (6) 7.0%
3613 Rockyledge
Waco, TX 76708
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
- --------------------------------
The following table sets forth certain information with respect to the
Common Stock and Preferred Stock of the Company beneficially owned by each
director and nominee for director of the Company, and by all directors and
officers as a group as of March 31, 1996. Unless otherwise indicated, each of
the persons named below as beneficially owning the shares set forth opposite his
or its name has sole voting power and sole investment power with respect to such
shares, and the shares are directly owned.
Percentage
Name of Amount and Nature of of Outstanding
Beneficial Owner Beneficial Ownership Shares (%)
- ---------------- -------------------- ----------
Gary C. Evans 5,647,759 Shares (1) 29.1%
90,133 Pref. Shares (3) 100.0%
Matthew C. Lutz 500,000 Shares (5) 2.6%
Oscar Lindemann - - -
Gerald W. Bolfing 1,360,794 Shares (6) 7.0%
James E. Upfield 210,000 Shares (6) 1.1%
Steven P. Smart 5,000 Shares Nil
Directors and Officers 7,723,553 Shares 39.8%
as a Group 90,133 Pref. Shares (3) 100.0%
(1) Includes i) 5,180,686 shares directly owned; ii) 350,000 shares underlying
stock options; and iii) 66,667 shares held by a company controlled by Mr.
Evans' wife.
(2) Outstanding shares for the purpose of calculating this percentage do not
include shares held by or for the account of the Company, but include
shares which can be acquired within sixty days by the exercise of stock
options or conversion rights.
(3) Mr. Evans is the owner of all of the outstanding Preferred Stock of the
Company with such stock being entitled to one vote per share. The Board of
Directors of the Company holds a proxy to vote Mr. Evans' Preferred Stock.
(4) Includes 30,000 shares held in the name of Mr. Edwards' wife.
(5) Includes 200,000 shares underlying stock options.
(6) Includes 100,000 shares underlying stock options.
25
<PAGE>
Item 12. Certain Relationships and Related Transactions.
In connection with the combination with the Company, Magnum assumed a note
receivable from a company affiliated with the President of the Company in the
amount of $54,615 at December 31, 1995. This note bears interest at ten percent
and is due on demand. Additionally, trade accounts receivable from this
affiliated company were $51,346 at December 31, 1995.
At December 31, 1995 , the Company had unsecured accounts receivable from
the President personally in the amount of $10,000 as of December 31, 1995, which
amount has been subsequently repaid.
At December 31, 1995, the Company had a Note Receivable with a balance of
$120,758 from an owner in an affiliated limited liability company. The note
provided for interest at ten percent and had a due date of December 31, 1995,
which was extended to June 30, 1996. The note was acquired by Magnum in the
combination with the Company.
26
<PAGE>
P A R T IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
A. (1) and (2). The financial statements are listed on the index appearing in
Part II, Item 7.
(3). The following exhibits are filed as part of this Form 10-KSB.
Exhibit No. Document
3 Articles of Incorporation and By-Laws
--- Articles of Amendment dated July 6, 1982 (incorporated by
reference to Registrant's Form 10-KSB for the year ended December
31, 1982.)
--- Articles of Amendment dated July 20, 1984 (incorporated by
reference to Registrant's Form 10-KSB for the year ended December
31, 1984.)
--- Statement Affecting Class of Series of Shares, dated August 1,
1984 (incorporated by reference to Registrant's Form 10-KSB for
the year ended December 31, 1984.)
--- Bylaws (incorporated by reference to Registrant's registration
statement on Form S-14, File No. 2-78673.)
--- Articles of Amendment dated September 21, 1990 (incorporated by
reference to Registrant's Form 10-KSB for the year ended December
31, 1990.)
--- Statement Affecting Class or Series of Shares dated December 28,
1990 (incorporated by reference to Registrant's Form 10-KSB for
the year ended December 31, 1990.)
--- Board Resolution amending Article III, Sections 3-1 and 4-1 of
the By-Laws of the Corporation dated December 21, 1990, which is
set forth as an exhibit hereto.
10 Material Contracts
--- Agreement and Plan of Reorganization and Merger, by and between
Sunbelt Energy, Inc. and IOM Exploration and Production, Inc., a
wholly-owned subsidiary of the Corporation, dated December 21,
1990 (incorporated by reference to Registrant's Current Report on
Form 8-K filed in the fourth quarter 1990.)
--- Agreement and Plan of Reorganization and Plan of Liquidation
(incorporated by reference to Registrant's Current Report on Form
8-K/A filed on October 3, 1995).
--- Amendment to Agreement and Plan of Reorganization and Plan of
Liquidation (incorporated by reference to Current Report on Form
8-K/A filed March 20, 1996).
22 Subsidiaries of the Registrant
--- Subsidiaries of Registrant which is set forth as an exhibit
hereto.
B. Reports on Form 8-K.
<TABLE>
<CAPTION>
Item No. Items Reported F/S Included Date of Event Date Filed
-------- -------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
2 Acquisition of Assets October 25, 1995 November 6, 1995, amended January 8, 1996
7 Financial Statements Schedule of Financial
Statements Attached
---------
2 Acquisition of Assets November 9, 1995 November 21, 1995, amended January 24, 1996
7 Financial Statements Schedule of Financial
Statements Attached
27
<PAGE>
SCHEDULE OF FINANCIAL STATEMENTS
I. Form 8-K/A filed January 8, 1996
(a) Financial Statements of the Properties Acquired:
Independent Auditor's Report
Historical Summary of Revenue and Direct Operating Expenses for the
Year Ending December 31, 1994 and the Nine Months Ending
September 30, 1995
Notesto Historical Summary of Revenues and Direct Operating Expenses
for the Year Ending December 31, 1994 and the Nine Months Ending
September 30, 1995
(b) Pro forma financial information:
Pro Forma Consolidated Financial Information (unaudited)
Pro Forma Consolidated Balance Sheet (unaudited) as of September 30,
1995
Pro Forma Consolidated Statement of Operations (unaudited)
For the Twelve Months Ended December 31, 1994
Pro Forma Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1995
Notes to Unaudited Pro Forma Consolidated Financial Statements
(c) Exhibits:
Agreement to Acquire Assets
II. Form 8-K/A filed January 24, 1996
(a) Financial Statements of the Properties Acquired:
Independent Auditor's Report
Historical Summary of Revenue and Direct Operating Expenses for the
Year Ending December 31, 1994 and the Nine Months Ending
September 30, 1995
Notes to Historical Summary of Revenues and Direct Operating Expenses
for the Year Ending December 31, 1994 and the Nine Months Ending
September 30, 1995
(b) Pro forma financial information:
Pro Forma Consolidated Financial Information (unaudited)
Pro Forma Consolidated Balance Sheet (unaudited) as of September 30,
1995
Pro Forma Consolidated Statement of Operations (unaudited)
For the Twelve Months Ended December 31, 1994
Pro Forma Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1995
Notes to Unaudited Pro Forma Consolidated Financial Statements
(c) Exhibits:
Agreement to Acquire Assets
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15 (d) of the Securities
and Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HUNTER RESOURCES, INC.
(Registrant)
BY: /s/ Gary C. Evans
Gary C. Evans, Chairman, President, CEO
Dated: May 1, 1996
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
Name and Signature Title Date
/s/ Gary C. Evans May 1, 1996
Gary C. Evans Chairman, President,
Chief Executive Officer
and Director
/s/ Matthew C. Lutz
Matthew C. Lutz Vice Chairman and May 1, 1996
Director
/s/ Gerald W. Bolfing
Gerald W. Bolfing Director May 1, 1996
/s/ James E. Upfield
James E. Upfield Director May 1, 1996
/s/ Oscar C. Lindemann
Oscar C. Lindemann Director May 1, 1996
/s/ William C. Jones
William C. Jones Secretary May 1, 1996
/s/ Steven P. Smart
Steven P. Smart Senior Vice President and May 1, 1996
Chief Financial Officer
/s/ David M. Keglovits
David M. Keglovits Principal Accounting Officer May 1, 1996
and Assistant Secretary
29
<PAGE>
EXHIBIT 22
Subsidiaries of Registrant
Gruy Petroleum Management Company
Hunter Butcher International Limited Liability Company, a Wyoming limited
liability company
Hunter Gas Gathering, Inc. (formerly IOM Gas, Inc.)
Inesco Corporation
Magnum Hunter Production, Inc.
Midland Hunter Petroleum Limited Liability Company, a Wyoming limited liability
company
SPL Gas Marketing, Inc.
30
<PAGE>
</TABLE>
